Reference no: EM13906838

The question involves the examination of a possible change in operating conditions that does not involve a change in capital outlay. Hint first determine is this an annual cost only or does present value need to be accounted for.

A concentrator with a nominal 12,000 tonne per day capacity operates 360 days per year. The grinding circuit consists of three parallel circuits. Each circuit needs to be shut down for relining at four monthly intervals. The current method of relining takes five days to complete and costs $ 30,000 in consumable supplies. A proposed alternative method is under investigation and would involve a two day shut down and cost $ 190,000 in consumable supplies.

Should the alternative method be used if the following conditions apply:

1 Milling reserve, a minimum of 9 years supply at a head grade of 1.2 %

2 Performance of the concentrator at 1.2 % head grade is 92%, with the concentrate grading at 28% of the mineral (on a dry basis) and 10% moisture.

3 The selling price is not likely to go below $ 1.50 per kg.

4 The operating costs below are applicable

General overheads fixed at $12,000 per day
Mining fixed costs $40,000 per day
Mining variable costs $2.00 per tonne milled

Milling Fixed costs $ 24,000 per day
Milling variable costs (grinding media and power) $1.00 per tonne milled